Investing in innovation

Transcription

1 74 Jaguar Land Rover Automotive plc 75 Financial statements Investing in innovation

2 76 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF JAGUAR LAND ROVER AUTOMOTIVE PLC We have audited the financial statements of Jaguar Land Rover Automotive Plc for the year ended 31 March which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Cash Flow Statements and the related notes 1 to 56. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed.

3 77 Respective responsibilities of directors and auditor As explained more fully in the Directors Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group s and the parent company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the Group s and of the parent company s affairs as at 31 March and of the Group s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: the information given in the Strategic Report and the Governance Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Governance Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Governance Report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Richard Knights (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Birmingham, UK 24 July

4 78 Consolidated financial statements CONSOLIDATED INCOME STATEMENT For the year ended 31 March Note * Restated * Restated Revenue 5 24,339 22,286 22,106 Material and other cost of sales excluding exceptional item (15,071) (13,405) (13,347) Exceptional item (157) Material and other cost of sales 6 (14,920) (13,562) (13,347) Employee cost 7 (2,490) (2,321) (1,977) Other expenses 10 (5,376) (4,674) (4,109) Development costs capitalised 11 1,426 1,242 1,158 Other income Depreciation and amortisation (1,656) (1,418) (1,051) Foreign exchange loss (216) (136) (216) Finance income Finance expense (net) 12 (68) (90) (135) Share of profit/(loss) of equity accounted investments (6) Profit before tax 13 1,610 1,557 2,614 Income tax excluding tax on exceptional item (292) (293) (576) Tax on exceptional item (46) 48 Income tax expense 14 (338) (245) (576) Profit for the year 1,272 1,312 2,038 * Comparatives have been restated due to the change in accounting policy for presentation of foreign exchange gains and losses as set out in note 2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March Profit for the year 1,272 1,312 2,038 Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation 32 (895) 489 (355) Income tax related to items that will not be reclassified 14, (113) 71 (752) 376 (284) Items that may be reclassified subsequently to profit or loss: (Loss)/gain on cash flow hedges (net) 35 (1,766) 55 (1,812) Currency translation differences 34 (1) 21 Income tax related to items that may be reclassified 14, (18) 363 (1,403) 36 (1,428) Other comprehensive (expense)/income net of tax (2,155) 412 (1,712) Total comprehensive (expense)/income attributable to shareholders (883) 1, Note

5 79 Consolidated financial statements CONSOLIDATED BALANCE SHEET As at 31 March Non-current assets Investments Other financial assets Property, plant and equipment 17 5,885 5,175 4,474 Intangible assets 18 6,167 5,497 4,952 Other non-current assets Deferred tax assets Total non-current assets 13,388 11,595 10,153 Current assets Cash and cash equivalents 21 2,878 3,399 3,208 Short-term deposits 2,609 1,252 1,055 Trade receivables 1,273 1,078 1,112 Other financial assets Inventories 23 3,464 2,685 2,416 Other current assets Current tax assets Total current assets 10,962 8,972 8,410 Total assets 24,350 20,567 18,563 Current liabilities Accounts payable 24 6,508 5,758 5,450 Short-term borrowings Other financial liabilities 26 2, Provisions Other current liabilities Current tax liabilities Total current liabilities 10,104 7,875 7,457 Non-current liabilities Long-term borrowings 25 3,395 2,373 2,381 Other financial liabilities 26 1, Provisions Retirement benefit obligation 32 1, Other non-current liabilities Deferred tax liabilities Total non-current liabilities 7,665 5,078 5,066 Total liabilities 17,769 12,953 12,523 Equity attributable to shareholders Ordinary shares 29 1,501 1,501 1,501 Capital redemption reserve Reserves 30 4,913 5,946 4,372 Equity attributable to shareholders 6,581 7,614 6,040 Total liabilities and equity 24,350 20,567 18,563 These consolidated financial statements were approved by the JLR plc Board and authorised for issue on 24 July. They were signed on its behalf by: Note Professor Dr Ralf D. Speth Chief Executive Officer Company registered number:

6 80 Consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Ordinary share capital Capital redemption reserve Other reserves Balance at 1 April 1, ,946 7,614 Profit for the year 1,272 1,272 Total equity Other comprehensive expense for the year (2,155) (2,155) Total comprehensive expense (883) (883) Dividend (150) (150) Balance at 31 March 1, ,913 6,581 Balance at 1 April 1, ,372 6,040 Profit for the year 1,312 1,312 Other comprehensive income for the year Total comprehensive income 1,724 1,724 Dividend (150) (150) Balance at 31 March 1, ,946 7,614 Balance at 1 April , ,196 5,864 Profit for the year 2,038 2,038 Other comprehensive expense for the year (1,712) (1,712) Total comprehensive income Dividend (150) (150) Balance at 31 March 1, ,372 6,040

7 81 Consolidated financial statements CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 March Note * Restated * Restated Cash flows generated from operating activities Cash generated from operations 39 3,291 3,722 3,964 Dividends received Income tax paid (199) (166) (389) Net cash generated from operating activities 3,160 3,556 3,575 Cash flows (used in)/generated from investing activities Investment in equity accounted investments 15 (12) (124) Purchases of other investments (1) Investment in other restricted deposits (32) (30) (12) Redemption of other restricted deposits Movements in other restricted deposits 19 (3) 7 Investment in short-term deposits (5,097) (4,147) (2,807) Redemption of short-term deposits 3,797 3,961 3,002 Movements in short-term deposits (1,300) (186) 195 Purchases of property, plant and equipment 39 (1,584) (1,422) (1,564) Proceeds from sale of property, plant and equipment 1 3 Cash paid for intangible assets 39 (1,473) (1,384) (1,206) Finance income received Acquisition of subsidiary 37 (11) Net cash used in investing activities (4,317) (2,966) (2,641) Cash flows generated from/(used in) financing activities Finance expenses and fees paid (150) (142) (230) Proceeds from issuance of short-term borrowings Repayment of short-term borrowings (443) (599) (623) Proceeds from issuance of long-term borrowings 857 1,032 Repayment of long-term borrowings (57) (58) (653) Payments of lease obligations (4) (5) (6) Dividends paid 31 (150) (150) (150) Net cash generated from/(used in) financing activities 541 (403) (38) Net (decrease)/increase in cash and cash equivalents (616) Cash and cash equivalents at beginning of year 21 3,399 3,208 2,260 Effect of foreign exchange on cash and cash equivalents Cash and cash equivalents at end of year 21 2,878 3,399 3,208 * Comparatives have been restated for the amendment in the current year to disclose separately Effect of foreign exchange on cash and cash equivalents as a separate line item after Cash and cash equivalents at beginning of year. The line items of cash flows from operating activities before changes in assets and liabilities in note 39 and cash generated from operations, Net cash generated from operating activities, and Net increase in cash and cash equivalents in the consolidated cash flow statement were previously reported as 3,179 million, 3,726 million, 3,560 million and 191 million for the year ended 31 March, and 4,093 million, 4,016 million, 3,627 million and 948 million for the year ended 31 March. An adjustment of 4 million and 52 million was recorded to those line items for the years ended 31 March and respectively, to reflect the removal of the foreign exchange gain on cash and cash equivalents from those line items to present this amount separately as described above. The line items of Cash flows from operating activities before changes in assets and liabilities, Cash generated from operations, Net cash generated from operating activities, and Net increase in cash and cash equivalents were therefore restated as 3,175 million, 3,722 million, 3,556 million and 187 million for the year ended 31 March, and 4,041 million, 3,964 million, 3,575 million and 896 million for the year ended 31 March. There is no impact on cash and cash equivalents as previously reported for the years ended 31 March or 31 March.

8 82 FINANCIAL STATEMENTS 1 BACKGROUND AND OPERATIONS Jaguar Land Rover Automotive plc ( the Company ) and its subsidiaries are collectively referred to as the Group or JLR. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is Abbey Road, Whitley, Coventry, CV3 4LF, England, United Kingdom. The Company is a subsidiary of Tata Motors Limited, India and acts as an intermediate holding company for the Jaguar Land Rover business. The principal activity during the year was the design, development, manufacture and marketing of highperformance luxury saloons, specialist sports cars and four-wheel-drive off-road vehicles. These consolidated financial statements have been prepared in Pound Sterling (GBP) and rounded to the nearest million GBP ( million) unless otherwise stated. Results for the year ended and as at 31 March have been disclosed solely for the information of the users. 2 ACCOUNTING POLICIES STATEMENT OF COMPLIANCE These consolidated and parent company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretation Committee (IFRS IC) interpretations as adopted by the European Union (EU) and the requirements of the United Kingdom Companies Act 2006 applicable to companies reporting under IFRS. The Company has taken advantage of section 408 of the Companies Act 2006 and, therefore, the separate financial statements of the Company do not include the income statement or the statement of comprehensive income of the Company on a standalone basis. BASIS OF PREPARATION The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below. CHANGE IN PRESENTATION OF FOREIGN EXCHANGE GAINS AND LOSSES During Fiscal /17, the Group reviewed the presentation of foreign exchange in the consolidated income statement following the continued increase in hedging activity, volatility in foreign exchange rates, and in anticipation of transition to IFRS 9. As a result, it is considered more appropriate to present realised foreign exchange relating to derivatives hedging revenue exposures as an adjustment to Revenue and realised foreign exchange relating to derivatives hedging cost exposures to Material and other cost of sales. The prior year comparatives have been represented on this basis. Realised foreign exchange gains of 78 million and 240 million have been adjusted to Revenue for the year ended March and respectively. Realised foreign exchange losses of 259 million and 162 million have been adjusted to Material and other cost of sales for the year ended March and respectively. There is no impact upon the reported profit after taxation or reported equity in either of the financial years. GOING CONCERN The directors have considered the financial position of the Group at 31 March (net assets of 6,581 million (: 7,614 million, : 6,040 million)) and the projected cash flows and financial performance of the Group for at least 12 months from the date of approval of these financial statements as well as planned cost and cash improvement actions, and believe that the plan for sustained profitability remains on course. The directors have taken actions to ensure that appropriate long-term cash resources are in place at the date of signing the accounts to fund Group operations. The directors have reviewed the financial covenants linked to the borrowings in place and believe these will not be breached at any point and that all debt repayments will be met. Therefore, the directors consider, after making appropriate enquiries and taking into consideration the risks and uncertainties facing the Group, that the Group has adequate resources to continue in operation as a going concern for the foreseeable future and is able to meet its financial covenants linked to the borrowings in place. Accordingly, the directors continue to adopt the going concern basis in preparing these consolidated and parent company financial statements.

9 83 2 ACCOUNTING POLICIES (CONTINUED) BASIS OF CONSOLIDATION Subsidiaries The consolidated financial statements include Jaguar Land Rover Automotive plc and its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has power over the investee, is exposed or has rights to variable return from its involvement with the investee, and has the ability to use its power to affect its returns. In assessing control, potential voting rights that currently are exercisable are taken into account, as well as other contractual arrangements that may influence control. All subsidiaries of the Group given in note 43 to the parent company financial statements are included in the consolidated financial statements. Intercompany transactions and balances including unrealised profits are eliminated in full on consolidation. Joint ventures and associates (equity accounted investments) Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for decisions about the relevant activities of the entity, being those activities that significantly affect the Group s returns. Associates are those entities in which the Group has significant influence, but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee and is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of the investee. Joint ventures and associates are accounted for using the equity method and are recognised initially at cost. The Group s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group s share of the income and expenses, other comprehensive income, and equity movements of equity accounted investments, from the date that joint control or significant influence commences until the date that joint control or significant influence ceases. When the Group s share of losses exceeds its interest in an equity accounted investment, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. When the Group transacts with a joint venture or associate of the Group, profits and losses are eliminated to the extent of the Group s interest in its joint venture or associate. Dividends received are recognised when the right to receive payment is established. USE OF ESTIMATES AND JUDGEMENTS The preparation of financial statements in conformity with IFRS requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those that are significant to the Group are discussed separately below. Judgements In the process of applying the Group s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: Revenue from multiple element arrangements: Where a contractual arrangement consists of two or more separate elements that have value to a customer on a standalone basis, revenue is recognised for each element as if it were an individual contract. The total contract consideration is allocated between the separate elements. Sales of bundled offers generally involve service plans and data connectivity contracts with the vehicle. For offers that cannot be separated into identifiable components, revenues are recognised in full over the life of the contract. The Group makes judgements on what components can be separated and the appropriate margin used to defer that component (cost plus basis). Refer to note 5. Assessment of cash-generating units: The Group has determined that there is one cash-generating unit. This is on the basis that there are no smaller groups of assets that can be identified with certainty which generate specific cash flows that are independent of the inflows generated by other assets or groups of assets. Refer to note 18. Alternative performance measures (APMs): Management exercises judgement in determining the adjustments to apply to IFRS measurements in order to derive APMs that provide additional useful information on the underlying trends. Refer to note 3.

10 84 2 ACCOUNTING POLICIES (CONTINUED) Estimates and assumptions: The areas where assumptions and estimates are significant to the financial statements are as described below. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Impairment of intangible and tangible fixed assets: The Group tests annually whether indefinite lived intangible fixed assets have suffered any impairment. The recoverable amount of the cash-generating unit is based on the higher of value in use and the fair value less cost of disposal. Value in use is calculated from cash flow projections generally over five years using data from the Group s latest internal forecasts, and extrapolated beyond five years using estimated long-term growth rates. Key estimates and sensitivities for impairment are disclosed in note 18. Uncertain tax provisions: Tax provisions are recognised for uncertain tax positions where a risk of an additional tax liability has been identified and it is probable that the Group will be required to settle that tax. Measurement is dependent on management s expectations of the outcome of decisions by tax authorities in the various tax jurisdictions in which the Group operates. This is assessed on a case by case basis using in-house experts, professional firms and previous experience. Refer to note 14. Product warranties: The Group provides product warranties on all new vehicle sales. Provisions are generally recognised when vehicles are sold or when new warranty programs are initiated. Based on historical warranty claim experience, assumptions have to be made on the type and extent of future warranty claims and customer goodwill, as well as on possible recall campaigns. These assessments are based on experience of the frequency and extent of vehicle faults and defects in the past. In addition, the estimates also include assumptions on the amounts of potential repair costs per vehicle and the effects of possible time or mileage limits. The provisions are regularly adjusted to reflect new information. Refer to note 27. Retirement benefit obligation: The present value of the post-employment benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ (income) for pensions include the discount rate, inflation and mortality assumptions. Any changes in these assumptions will impact upon the carrying amount of post-employment benefit obligations. Key assumptions and sensitivities for postemployment benefit obligations are disclosed in note 32. REVENUE RECOGNITION Revenue comprises the amounts invoiced to customers outside the Group and is measured at the fair value of the consideration received or receivable, net of discounts, sales incentives, dealer bonuses and rebates granted, which can be identified at the point of sale. Revenue is presented net of excise duty, where applicable, and other indirect taxes. Revenue is recognised when the risks and rewards of ownership have been transferred to the customer and the amount of revenue can be reliably measured with it being probable that future economic benefits will flow to the Group. The transfer of the significant risks and rewards are defined in the underlying agreements with the customer. No sale is recognised where, following disposal of significant risks and rewards, the Group retains a significant financial interest. The Group s interest in these items is retained in inventory, with a creditor being recognised for the contracted buyback price. Income under such agreements, measured as the difference between the initial sale price and the buyback price, is recognised on a straight-line basis over the term of the agreement. The corresponding costs are recognised over the term of the agreement based on the difference between the item s cost, including estimated costs of resale, and the expected net realisable value. If a sale includes an agreement for subsequent servicing or maintenance, the fair value of that service is deferred and recognised as income over the relevant service period in proportion with the expected cost pattern of the agreement.

11 85 2 ACCOUNTING POLICIES (CONTINUED) COST RECOGNITION Costs and expenses are recognised when incurred and are classified according to their nature. Expenditures are capitalised, where appropriate, in accordance with the policy for internally generated intangible assets and represent employee costs, stores and other manufacturing supplies, and other expenses incurred for product development undertaken by the Group. GOVERNMENT GRANTS AND INCENTIVES Government grants are recognised when there is reasonable assurance that the Group will comply with the relevant conditions and the grant will be received. Government grants are recognised in the consolidated income statement, either on a systematic basis when the Group recognises, as expenses, the related costs that the grants are intended to compensate or, immediately, if the costs have already been incurred. Government grants related to assets are deducted from the cost of the asset and amortised over the useful life of the asset. Government grants related to income are presented as an offset against the related expenditure, and government grants that are awarded as incentives with no ongoing performance obligations to the Group are recognised as other income in the period in which the grant is received. Sales tax incentives received from governments are recognised in the consolidated income statement at the reduced tax rate, and revenue is reported net of these sales tax incentives. FOREIGN CURRENCY The Company has a functional currency of GBP. The presentation currency of the consolidated financial statements is GBP. The functional currency of the UK and non-uk selling operations is GBP, being the primary economic environment that influences these operations. This is on the basis that management control is in the UK, GBP is the currency that primarily determines sales prices and is the main currency for the retention of operating income. The functional currency of Chery Jaguar Land Rover Automotive Co. Ltd., the Group s principal joint venture, is Chinese Yuan (CNY). The functional currency of Jaguar Land Rover Slovakia s.r.o is Euro. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Foreign currency denominated monetary assets and liabilities are remeasured into the functional currency at the exchange rate prevailing on the balance sheet date. Exchange differences are recognised in the consolidated income statement as Foreign exchange loss. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group s foreign operations (non-gbp functional currency) are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity. INCOME TAXES Income tax expense comprises current and deferred taxes. Income tax expense is recognised in the consolidated income statement, except when related to items that are recognised outside of profit or loss (whether in other comprehensive income or directly in equity), or where related to the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination. Current income taxes are determined based on respective taxable income of each taxable entity and tax rules applicable for respective tax jurisdictions. Deferred tax assets and liabilities are recognised for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases, and unutilised business loss and depreciation carryforwards and tax credits. Such deferred tax assets and liabilities are computed separately for each taxable entity and for each taxable jurisdiction. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, depreciation carry-forwards and unused tax credits could be utilised.

12 86 2 ACCOUNTING POLICIES (CONTINUED) Deferred tax assets and liabilities are measured based on the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, and on the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. EXCEPTIONAL ITEM Exceptional items by virtue of their nature, size or frequency are disclosed separately on the face of the consolidated income statement where this enhances understanding of the Group s performance. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost of acquisition or construction less accumulated depreciation and accumulated impairment, if any. Cost includes purchase price, non-recoverable taxes and duties, labour cost and direct overheads for self-constructed assets and other direct costs incurred up to the date the asset is ready for its intended use. Interest cost incurred for constructed assets is capitalised up to the date the asset is ready for its intended use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been incurred for the asset. Depreciation is charged on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives of the assets are as follows: Class of property, plant and equipment Estimated useful life (years) Buildings 20 to 40 Plant, equipment and leased assets 3 to 30 Vehicles 3 to 10 Computers 3 to 6 Fixtures and fittings 3 to 20 The depreciation for property, plant and equipment with finite useful lives is reviewed at least at each year end. Changes in expected useful lives are treated as changes in accounting estimates. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Freehold land is measured at cost and is not depreciated. Heritage assets are not depreciated as they are considered to have a residual value in excess of cost. Residual values are reassessed on an annual basis. Depreciation is not recorded on assets under construction until construction and installation are complete and the asset is ready for its intended use. Assets under construction include capital prepayments. INTANGIBLE ASSETS Acquired intangible assets Intangible assets purchased, including those acquired in business combinations, are measured at acquisition cost, which is the fair value on the date of acquisition, where applicable, less accumulated amortisation and accumulated impairment, if any. Intangible assets with indefinite lives are reviewed annually to determine whether an indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

13 87 2 ACCOUNTING POLICIES (CONTINUED) For intangible assets with finite lives, amortisation is charged on a straight-line basis over the estimated useful lives of the acquired intangible assets as per the estimated amortisation periods below: Estimated amortisation period Class of intangible asset (years) Software 2 to 8 Patents and technological know-how 2 to 12 Customer-related dealer network 20 Intellectual property rights and other intangibles 3 to indefinite The amortisation for intangible assets with finite useful lives is reviewed at least at each year end. Changes in expected useful lives are treated as changes in accounting estimates. Capital work-in-progress includes capital advances. Customer-related intangibles acquired in a business combination consist of dealer networks. Intellectual property rights and other intangibles mainly consist of brand names, which are considered to have indefinite lives due to the longevity of the brands. Internally generated intangible assets Research costs are charged to the consolidated income statement in the year in which they are incurred. Product development costs incurred on new vehicle platforms, engines, transmission and new products are recognised as intangible assets when feasibility has been established, the Group has committed technical, financial and other resources to complete the development and it is probable that the asset will generate future economic benefits. The costs capitalised include the cost of materials, direct labour and directly attributable overhead expenditure incurred up to the date the asset is available for use. Interest cost incurred is capitalised up to the date the asset is ready for its intended use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been incurred for the asset. Product development cost is amortised over a period of between two and ten years. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment loss, if any. Amortisation is not recorded on product development in progress until development is complete. IMPAIRMENT Property, plant and equipment and intangible assets At each balance sheet date, the Group assesses whether there is any indication that any property, plant and equipment and intangible assets may be impaired. If any such impairment indicator exists, the recoverable amount of an asset is estimated to determine the extent of impairment, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, or earlier if there is an indication that the asset may be impaired. The estimated recoverable amount is the higher of value in use and fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash-generating unit) for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated income statement. An annual impairment review for heritage assets is performed and any impairment in the carrying value is recognised immediately in the consolidated income statement.

14 88 2 ACCOUNTING POLICIES (CONTINUED) Equity accounted investments: joint ventures and associates The requirements of IAS 39 Financial Instruments: Recognition and Measurement are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in a joint venture or an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (the higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand, demand deposits and highly liquid investments with an original maturity of up to three months that are readily convertible into known amounts of cash and that are subject to an insignificant risk of changes in value. INVENTORIES Inventories are valued at the lower of cost and net realisable value. Cost of raw materials and consumables are ascertained on a first-in, first-out basis. Costs, including fixed and variable production overheads, are allocated to work-in-progress and finished goods, determined on a full absorption cost basis. Net realisable value is the estimated selling price in the ordinary course of business less estimated cost of completion and selling expenses. Inventories include vehicles sold subject to repurchase arrangements. These vehicles are carried at cost to the Group and are amortised in changes in stocks and work-in-progress to their residual values (i.e. estimated second-hand sale value) over the term of the arrangement. PROVISIONS A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are held for product warranty, legal and product liabilities, residual risks and environmental risks as detailed in note 27 to the consolidated financial statements. LONG-TERM INCENTIVE PLAN (LTIP) The Group operates a share-based payment LTIP arrangement for certain employees. The scheme provides a cash payment to the employee based on a specific number of phantom shares at grant date and the share price of Tata Motors Limited at the vesting date, subject to profitability and employment conditions. These are accounted for as cash-settled arrangements, whereby a liability is recognised at fair value at the date of grant, using a Black-Scholes model. At each balance sheet date, until the liability is settled, the fair value of the liability is remeasured, with any changes in fair value recognised in the consolidated income statement. LEASES At the inception of a lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the terms and substance of the lease arrangement. Assets taken on finance lease A finance lease is recognised as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalised and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each year during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

15 89 2 ACCOUNTING POLICIES (CONTINUED) Assets taken on operating lease Leases other than finance leases are operating leases, and the leased assets are not recognised on the consolidated balance sheet. Payments made under operating leases are recognised in the consolidated income statement on a straight-line basis over the term of the lease in Other expenses. EMPLOYEE BENEFITS Pension schemes The Group operates several defined benefit pension schemes; the UK defined benefit schemes were previously contracted out of the second state pension scheme until 5 April. The assets of the plans are generally held in separate trusteeadministered funds. The plans provide for a monthly pension after retirement based on salary and service as set out in the rules of each scheme. Contributions to the plans by the Group take into consideration the results of actuarial valuations. The plans with a surplus position at the balance sheet date have been limited to the maximum economic benefit available from unconditional rights to refund from the scheme or reduction in future contributions. Where the subsidiary group is considered to have a contractual obligation to fund the pension plan above the accounting value of the liabilities, an onerous obligation is recognised. The UK defined benefit schemes were closed to new joiners in April For defined benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial revaluations being carried out at the end of each reporting period. Defined benefit costs are split into three categories: Current service cost, past service cost, and gains and losses on curtailments and settlements; Net interest cost; and Remeasurement. Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling and the return on scheme assets (excluding interest) is recognised immediately in the consolidated balance sheet with a charge or credit to the consolidated statement of comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not recycled. Past service cost, including curtailment gains and losses, is generally recognised in profit or loss in the period of scheme amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability. The Group presents these defined benefit costs within Employee costs in the consolidated income statement (see note 7). Separate defined contribution schemes are available to all other employees of Jaguar Land Rover. Costs in respect of these schemes are charged to the consolidated income statement as incurred. Post-retirement Medicare scheme Under this unfunded scheme, employees of some subsidiaries receive medical benefits subject to certain limits of amount, periods after retirement and types of benefits, depending on their grade and location at the time of retirement. Employees separated from the Group as part of an Early Separation Scheme, on medical grounds or due to permanent disablement, are also covered under the scheme. The applicable subsidiaries (and therefore, the Group) account for the liability for the post-retirement medical scheme based on an annual actuarial valuation. Actuarial gains and losses Actuarial gains and losses relating to retirement benefit plans are recognised in the consolidated statement of comprehensive income in the year in which they arise. Actuarial gains and losses relating to long-term employee benefits are recognised in the consolidated income statement in the year in which they arise. Measurement date The measurement date of all retirement plans is 31 March.

16 90 2 ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS Classification, initial recognition and measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets are classified into categories: financial assets at fair value through profit or loss (which can either be held for trading or designated as fair value options); held-to-maturity investments; loans and receivables; and availablefor-sale financial assets. Financial liabilities are classified into financial liabilities at fair value through profit or loss or classified as other financial liabilities. No financial instruments have been classified as held-to-maturity. Where the Group provides convertible loan notes to third parties, these are designated as fair value through profit or loss using the fair value option. Financial instruments are recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument. Initially, a financial instrument is recognised at its fair value. Transaction costs directly attributable to the acquisition or issue of financial instruments are recognised in determining the carrying amount, if it is not classified as at fair value through profit or loss. Subsequently, financial instruments are measured according to the category in which they are classified. Financial assets and financial liabilities at fair value through profit or loss held for trading: Derivatives, including embedded derivatives separated from the host contract, are classified into this category. Financial assets and liabilities are measured at fair value with changes in fair value recognised in the consolidated income statement with the exception of those derivatives that are designated as cash flow hedging instruments and for which hedge accounting is applied. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that are not classified as financial assets at fair value through profit or loss or financial assets available-for-sale. Subsequently, these are measured at amortised cost using the effective interest method less any impairment losses, if any. These include cash and cash equivalents, trade receivables, finance receivables and other financial assets. Available-for-sale financial assets: Available-for-sale financial assets are those non-derivative financial assets that are either designated as such upon initial recognition or are not classified in any of the other financial assets categories. Subsequently, these are measured at fair value and changes therein are recognised in other comprehensive income, net of applicable deferred income taxes, and accumulated in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. The Group does not hold any available-for-sale financial assets. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Embedded derivatives relating to prepayment options on senior notes are not considered as closely related and are separately accounted unless the exercise price of these options is approximately equal on each exercise date to either the amortised cost of the senior notes or the present value of the lost interest for the remaining term of the senior notes. Equity instruments An equity instrument is any contract that evidences residual interests in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Other financial liabilities These are measured at amortised cost using the effective interest method. Determination of fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Subsequent to initial recognition, the Group determines the fair value of financial instruments that are quoted in active markets using the quoted bid prices (financial assets held) or quoted ask prices (financial liabilities held) and using valuation techniques for other instruments. Valuation techniques include discounted cash flow method and other valuation models.